Report sees Danish pension consolidation
DENMARK – Further consolidation of the Danish pensions sector - and a trend towards specialised managers – are two trends identified by Kirstein Finans in a new report.
The consultant’s 170-page 2002 Danish life and pensions report has just been published in English and it provides a detailed overview of Denmark’s pensions industry.
Kirstein Finans describes 2002 as “another crisis year”, over which period, the investment patterns of the pensions and life companies in Denmark altered significantly. The sector’s share of Danish and foreign equity reduced by 4.7% and 8.8% from 2001 to 2002.
The greater decrease in foreign equity investments was a result of larger price drops and the fact that a number of companies chose to carry out their sell-off on the international market due to the lack of liquidity in the Danish market, says the report.
And although parts of the proceeds were invested in foreign bonds, the reduction in the portfolio of foreign equity resulted in a decrease in the proportion of investments outside Denmark for the first time in many years, says Kirstein Finans.
The sector’s holdings in total bonds increased by 12% to approximately 70% of investment assets over 2002. Danish bond allocation increased by 6.8%, and foreign bond allocation by 5.7%, while index-lined bond allocation was reduced by 0.7%.
Investments in property remained stable, although the report warns that the illiquidity of the asset class may prove a problem in relation to the dynamic management of the balance sheets of the companies.
New asset types were considered, with net investments in bonds with lower credit ratings, corporate bonds and emerging market bonds continuing. Other alternative assets were debated, although n major changes occurred. The share of private equity investments decreased slightly and only a few companies invested in hedge funds.
The tendency towards a higher degree of segmentation in the markets was evident, however, says the report, which will result in the need for more specialist managers, and promote the internationalisation of portfolio management.
In terms of performance over the period, the sector realised a return of –0.2% compared to –1.5% in 2001. Alka Liv Group achieved the greatest returns, with 11.4%, while Skandia Link produced the lowest returns of –19.9%. Denmark’s largest scheme, ATP, returned –2.9%.
Kirstein Finans also expects consolidation of the pension sector to continue. “We expect further mergers to take place or co-operation agreements to be made in order to take advantage of economies of scale in relation to administration and management of the pension funds.” The sector’s cost per insured rose by 5.4% over the 2002.
Details of how to receive a copy of the report in Danish or English can be found on Kirstein Finans’ website www.kirsteinfinans.dk.